Public Sector Energy Editorial 15 December 2015

An analysis of the local authority energy market and the latest developments around the UK.

Policy & Strategy

I start this week in Paris. The Intergovernmental conference has received considerable press coverage, with the BBC providing updates as the negotiations developed. It is clear that lessons have been learnt from past mistakes and the chairing of the event by the French Minister appears to have gone well. The deadline was also put back by a day to allow final negotiations to be concluded.

A deal has been struck by all 196 countries taking part. The full details of this will become available over time and it will take some time to digest the implications, both globally and in the UK. For now, we are told that the 2 degree limit is officially being questioned, with a commitment to cut emissions further than this. The deal will not be legally binding, but each country that has submitted a plan will be expected to keep to it.

And in another piece, John Matthews of Macquarie University in Australia argues that renewables can help countries expand manufacturing and create jobs, reduce local pollution, increase energy security and reduce import costs from fossil fuels, as well as reducing emissions:

There are always positive stories accompanying a COP convention, such as this one from Next Energy News, where the Chief Executive of Unilever says that businesses that are ignoring climate change are putting peoples lives at risk:

The problem is that after a while all the hype dies down and then it’s all forgotten again. The secret is to keep the climate at the top of the agenda throughout and that has certainly not been achieved in the past.

In the UK, Friday 16 December will see the Energy and Climate Change Committee in Parliament holding a session on the Paris conference, looking at the outcomes from COP 21 and also the impact of UK energy policy on the greenhouse gas emissions goals. This is likely to be another uncomfortable session for Secretary of State, Amber Rudd:

Then there is the flooding in the UK. This is dealt with below in the flooding section, but suffice to say here under Policy and Strategy that there is a clear connection between the adverse weather conditions in the UK and climate change. This is direct from the Met Office’s Chief Scientist, Dame Julia Slingo, as reported by the Telegraph:

Solar Power Portal also makes a sound point in relation to policy and strategy. It points out that the Chinese firm that is part of the group investing in the Hinkley C nuclear power station in the UK is also investing millions of pounds in solar PV – but not here, in France. This is because the investment context for renewables in the UK is not stable enough. So we get the nuclear investment and France gets the solar investment, purely due to the Government’s current energy policy:

The Energy and Climate Change Committee in Parliament is to take evidence on the impact of recent policy announcements on the solar industry in the UK. It will also look at the impact of recent policy announcements on investor confidence and the impact of policy announcements on the cost of energy projects generally.

Evidence will be given by Paul Barwell, from the Solar Trade Association, and Nick Boyle of Lightsource Renewable Energy Ltd, the largest solar developer in the UK. As the job cuts in the solar industry that are directly attributable to Government policy become clear (this will not be until the Spring now), criticism of this policy direction will mount:

A group of local authorities in the Severn estuary are joining together to coordinate activities. As Renewable Energy Installer notes, the respective councils of Bristol, Cardiff, Devon, Somerset, South Gloucestershire, Newport, North Devon, North Somerset, Sedgemoor and West Somerset have formed the Bristol Channel and Severn Estuary Energy Group to oversee their strategic cooperation:

On the finance side, bad news was received for everyone trying to develop solar farms in the UK last week in that the European Union announced that it is to retain Minimum Import Pricing on solar imports from China. This is an example of a policy that has spectacularly misfired and only now serves to artificially inflate the price of solar panels within the EU.

The Solar Trade Association said in its members email that MIP will remain in place for up to 15 more months, which takes us to March 2017 at the latest. However, it adds in a rather sinister tone that MIP could possibly be extended right up until 2020 if the Commission decides this. It is therefore calling its members to action to get their views heard on the need to remove MIP as soon as possible.

Blue and Green Tomorrow reports on the MIP decision and is not impressed:

Staying with finance and the EU, there is more bad news on the VAT front. The government has now issued a Consultation Paper on the proposals to bring VAT in the UK in line with EU rules and this means an increase from 5 % on renewable energy equipment to the full 20%. The change will affect not just solar panels, but also biomass boilers, heat pumps of the various varieties, insulation and central heating systems.

The Government had been levying the reduced rate but was challenged by the EU, which did not believe that this was in line with its VAT directive. The UK challenged the decision in the European Court of Justice and lost the case. It therefore has now to comply with the Directive and these proposals make suggestions as to how the new rate is brought in:

Of course, this comes at a very bad time. The Feed in Tariff rates are proposed to be slashed from early next year and ROCs were removed from solar farms for over 5 MW last April, with schemes of under 5 MW following in April 2016. A rise in the cost of solar at the same time is a very bad outcome.

Solar Power Portal considers this issue in relation to solar PV IE should the Government take into account the fact that it will be recovering more VAT in determining the new FIT rates? It says: “With VAT set to rise from the 5% relief rate to 20%, the cost of a standard rooftop solar installation is set to rise by as much as £900 – significantly affecting the desired hurdle rate on which Parsons Brinkerhoff designed its consultation. The proposed rate of 1.63p/kWh would not deliver the 4% return argued by government to be sufficient for solar installations once the new rate of VAT comes into force on 1 August 2016.”

I seriously doubt that the Government will take this into account, but the point is well made:

On that FIT review, the Solar Trade Association reports that its latest intelligence indicates it is likely that there will be an announcement this week on the Feed in Tariff review. It says: “This would indicate that if DECC decided to do a pause, it could come into effect from 4th-8th Jan, and any new tariffs would come in at the earliest on 4th-8th Feb.

“We are anticipating a better outcome than DECC originally proposed, but understanding the cost control mechanism will be key. “

My own sources indicate that it could be even later than this that the new rates come into effect. Depending how quickly they can lay the Order before Parliament, it may well be nearer March before they come in.

Of course, this means that the solar PV industry at every level (domestic, commercial, public sector) is working flat out to get as much solar PV fitted before the deadline. Which draws the Government’s calculations about deployment into question once again. The latest predictions are 12 GW of solar PV by April 2016, but I am hearing speculation about this figure being as high as 14 GW! Which won’t please Uncle George and his financial strategy for the Levy Control Framework.

Finally, we are expecting the consultation response on the Renewables Obligation consultation and this is likely to come out at the same time as the Feed in Tariff review. Here, the proposed provisions on grandfathering have caused some difficulties but whatever the result now, the Government’s policy has had its effect.

Those local authorities that were tempted to go for the deadline of March 2016 to complete solar farms have all been put off by the uncertainty of this consultation. So when the result finally arrives, it will be largely irrelevant. This is a classic case of the Government using uncertainty as a direct policy instrument. As for the result itself, it is not clear at this stage if the Government will retain grandfathering or do a banding review.Electric Vehicles & Transport

Five years after its launch, the Nissan Leaf is about to hit the 200,000 sales mark. This is more than double the sales of its nearest rival and shows that Nissan’s bold investment in EVs (at a time when it was not certain that this would be the format that would take off) has been rewarded:

And on the wider transport front, Minister Andrew Jones launched the first ever ‘tram train’ in Sheffield last week. The vehicles from this government-funded project are designed to run on both the city’s tramlines and the rail network between Sheffield and Rotherham. This will allow passengers to make single journey between tram stops and conventional rail stations from early 2017, once the works are complete:

Sounds great. Sadly, we are still waiting for our tram to be built here in Leeds …

I have also been writing quite a bit recently about energy storage, particularly from batteries. The notion that EV batteries could be used for this purpose has never really convinced me but work is progressing on this very theme. Here Edie.net reports that there is project ongoing in Denmark:

Of course, this becomes more persuasive when the EV batteries become more powerful. So the battery in my current Leaf would not be too much use, but the new 24 kv battery planned for 2017 would be a different proposition.

Energy Storage

Energy storage continues to move forwards apace. Here the Financial Times concludes that storage is no longer just hot air:

And technology is also advancing. Here, a form of paper that can store as much electricity as batteries, is reported by Edie.net: http://www.edie.net/news/6/Record-breaking-Power-Paper-can-store-as-much-electricity-as-batteries/?utm_source=hootsuite

Electricity Networks

The latest capacity market auction has been completed, securing 46 GW of power for the year 2019/20. This was a reduction in price on the first auction. The price settled was £18 per kw of power:

The capacity market offers an interesting route for the public sector to get renewable energy projects funded and we are looking into this on behalf of a number of local authorities now.

Community Energy

Ed Davey, former Secretary of State for Energy and Climate Change under the last Government, has indicated that community energy is going to be “much bigger than Whitehall, Westminster and the wider industry currently expects” due to the expected migration towards distributed power generation. Solar Power Portal reports:

The Government has announced that more local authorities are to joint the One Public Estate programme, which is centered around asset sales. The programme is jointly run by the Cabinet Office and the Local Government Association and brings together all public sector bodies within a locality with a view to pooling data on their asset holdings and developing joint plans to share property and release surplus land and buildings for other uses. This will also release land and property that can be reused for housing and new enterprise, boosting local jobs, growth and house building.

Just don’t go selling land that you could use for renewable energy purposes in the future! Land for solar PV, wind or biomass will become increasingly valuable:

As the rain continues to fall in the North of England and above, the flooding situation is still dire. The Government has a problem with this as there is a fragile agreement between it and the UK insurance industry about the latter continuing with cover for householders in notorious flood areas. The industry only continues cover on Government promises of more flood defence investment.

But after the latest round of flooding, will the Government’s standards for flood defences have to be increased? That will not go down well with George Osborne. So in Cumbria there is to be an investigation and a new plan next year:

And the Government is having to provide more financial aid in the meantime to help those affected: https://www.gov.uk/government/news/storm-desmond-flood-appeals-government-doubles-support

And finally …..

When you are dragging yourself round a busy London doing your Christmas shopping, you can pop in to Harrods and have a test drive of the Tesla S series. It should provide an antidote to the Christmas shopping blues, but only if the traffic in the area permits!